PG&E said Friday it’s dropping efforts to sell or seek relicensing for a remote Mendocino County hydropower project that plays an outsized role in providing water to cities, residents and ranchers from Ukiah south through much of Sonoma County and into northern Marin County.

Little known to many of the more than 600,000 customers and residents who get their water from the Russian River is the century-old Potter Valley Project’s contribution of 20 billion gallons of water that it diverts yearly from the Eel River.

PG&E, on the verge of a Chapter 11 bankruptcy filing expected next week in the face of $30 billion in potential liabilities related to the 2017 and 2018 California wildfires, cited financial stress as a factor in the decision to scrap plans to renew a federal license for the hydropower operation or sell it to a new operator.

In a filing with the Federal Energy Regulatory Commission on Friday, PG&E cited “challenging financial circumstances” among the reasons for essentially surrendering Potter Valley, which generates 9 megawatts of power, about 0.1 percent of the utility giant’s nearly 7,700-megawatt total.

In a letter to Mendocino County stakeholders, the embattled utility said: “We recognize the gravity of this action, but believe it is appropriate given PG&E’s current circumstances.”

The expected bankruptcy filing “underscores the decision,” but was not the primary cause, PG&E spokesman Paul Moreno said. “We have been looking to divest this and other (hydro) projects that are noneconomical for years,” he said.

Power from Potter Valley exceeds the cost of alternative sources of renewable power on the open market and is therefore a burden on PG&E ratepayers, Moreno said.

But the water is virtually invaluable, especially to towns and ranches along the upper Russian River from Potter Valley to Healdsburg. The 7,000-acre valley alone produces $34 million worth of wine grapes, cattle and other products a year.

Grant Davis, general manager of Sonoma Water, said the water diverted from the Eel River and stored in Lake Mendocino near Ukiah, is “critically important” to his agency’s 600,000 customers.

Asked if Sonoma County could afford to lose that water, Davis said: “I think everyone would like that answered.”

Without inflow from the project, Lake Mendocino would go dry in 60 percent of the years from 2015 to 2045, according to a Sonoma Water study.

PG&E said its action will likely prompt the federal energy commission, known as FERC, to initiate an “orphan project process” which would culminate in either a new operator or decommissioning of the project, which includes the powerhouse in Potter Valley and two dams on the Eel River, including one that impounds the Lake Pillsbury reservoir.

Once the process officially starts, interested parties would have 90 days to express interest in taking over Potter Valley, followed by 18 months to submit a licensing proposal to FERC. PG&E will continue to operate the project indefinitely as the process moves forward, Moreno said.

Janet Pauli, a Potter Valley rancher, said PG&E’s move was a complete surprise.

The Mendocino County Inland Water and Power Commission, a coalition of five local agencies chaired by Pauli, had worked for months on a proposal to take over the project and had a Feb. 1 deadline to submit the plan.

“Suddenly, the path forward just got pulled right out from under us,” she said.

The orphan process, which could lead to decommissioning, “has the potential to threaten the regional water supply,” Pauli said.

A PG&E statement said the utility was “very appreciative” of local involvement in the relicensing process, which it officially abandoned with Friday’s filing.

“We apologize for any challenges or inconvenience this action might cause,” the utility’s statement said.

Rep. Jared Huffman, D-San Rafael, said he was not surprised by PG&E’s move, saying he never expected the relicensing “to lead anywhere.”

Huffman said he will continue working with stakeholders on what he called a “two-basin solution” amendable to interests in both the Russian and Eel river basins. “We’ve got the right people around a table,” he said.

But there’s a gulf between Russian River interests intent on maintaining the diversion of water from the Eel River and Eel River advocates who want fish passage improved, preferably with removal of the dam at Lake Pillsbury, which is a linchpin of the Potter Valley Project.

“Salmon fishermen have been fighting to free the Eel River from the Potter Valley Project for decades,” Noah Oppenheim, executive director of the Pacific Coast Federation of Fishermen’s Associations, said in a statement Friday.

With the advent of the orphan hydropower project process, “we’re closer to that goal than ever,” he said.

Friends of the Eel River, an environmental nonprofit, also hailed PG&E’s announcement, predicting that no new operator for the Potter Valley Project is likely to emerge and the project will be decommissioned.

“Removal of at least Scott Dam (at Lake Pillsbury) is now more likely than not,” Scott Greacen, the group’s conservation director, said in a statement.

Davis, the water agency head, said Sonoma County supports a two-basin solution, saying there is “work to be done” toward that plan. He declined to say whether the county would collaborate with the Mendocino parties in taking over the project.

You can reach Staff Writer Guy Kovner at 707-521-5457 or guy.kovner@pressdemocrat.com. On Twitter @guykovner.